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Continuity and Change: TD Ameritrade’s New Leadership

One year after a high-profile changing of the guard at TD Ameritrade Institutional, Tom Nally is making his mark at the fast-growing RIA custodian

Tom Nally had a tough act to follow at TD Ameritrade Institutional, but a year after Nally assumed the presidency of TDAI, he is exhibiting leadership that both embraces continuity at the custodian while placing his own stamp on the organization. That leadership is perhaps most clearly seen in the team approach to fulfilling TDAI’s strategy of growing assets by serving advisors, with support from the top in the enhanced presence at TDAI events of TD Ameritrade’s President and CEO Fred Tomczyk, and the emergence of Skip Schweiss and the recently hired Jim Dario as key members of Nally’s team.

In a series of in-person and telephone interviews with Nally, Schweiss and Dario, continuity and new purpose were on clear display. They were in evidence as well at TDAI’s national conference in San Diego as the calendar moved from January to February, where in a Q&A session following comments by Tomczyk, Nally, Tom Bradley (Nally’s high-profile predecessor and mentor who now runs TD Ameritrade’s retail business) and Marvin Adams, COO of TD Ameritrade, two attendees got to the heart of advisors’ relationships with their custodians. One advisor asked if TD could cut its costs to advisors. A second advisor asked about competition for clients between TDAI RIAs and TD’s retail branches.

These pointed questions have become a hallmark of the TDAI conference: The executives share their vision and strategy in the advisor space while the advisors share their bottom- and top-line concerns, simultaneously asking for help in running more profitable businesses while seeking reassurance that their custodial partner isn’t competing with them.

The answers from the executives were direct and clear. TDAI’s open-architecture Veo technology platform ensures that advisors can run more profitable businesses, Nally responded, while Bradley stressed that compensation for all TD Ameritrade employees, in both the retail and advisor channels, is based on growing assets for the overall company and scoring well on customer service.

In the retail branches, a client with more than $500,000 in investable assets is routinely referred to TDAI RIAs, said Bradley, but that’s not a strict line; the complexity of a client’s financial life may well lead a retail branch to refer investors to an RIA even if they don’t meet that minimum.

“In our organization,” said Nally (left) in an interview following the national conference, “every person is compensated based on net new assets and our CSI client satisfaction index, so there’s a financial incentive” to all TD Ameritrade staffers to grow assets regardless of the channel. “We’re here to serve advisors,” Nally stressed, so “if we deliver to advisors, ultimately we’re all more successful.”

Human Capital, for TDAI and Advisors

Nally and TD put their human capital money where their mouths are. “For us, and for me personally, our associates are our most valuable resource,” Nally said. “We’re fortunate to have a great culture—that’s not an accident.” Nally stressed that an authentic service culture “can’t be a façade.” His approach to team building? “Treat [associates] with dignity and respect” and make clear to them “how valuable they are to the organization, so the client can feel that.”

From a leadership perspective, Nally said, “it doesn’t just happen” that you get the right people in your organization. “You have to be thoughtful around the decisions you make and the people you hire.” Yes, the company has “quant goals” for its associates, but achieving those goals can’t be done, he said, “by any means necessary.” Rather, his approach is to “aggressively make sure that people buy into our way of doing things.” TDAI’s team approach is “a central part of the culture—everything we do overlaps,” so “if Jim [Dario] does something, there will be a downstream effect on Kate Healy in marketing, on Kristen Petrick in public relations.”

As a case in point, he presented the aforementioned Dario, who was hired away from Pershing Advisor Solutions last September. “I was looking for two things” in that high-profile hiring, Nally said. “He knew the RIA business cold—he has 20-plus years experience—but he’s also a good leader and a good guy who could fit right into the culture.”

So was fielding those pointed questions from advisors at the national conference uncomfortable? “Transparency is an important thing because it keeps everybody accountable. We have nothing to hide,” Nally said. TDAI’s goals? “We’re trying to further the industry, grow the RIA space, increase the visibility of the model and help advisors grow. There’s no benefit to hiding behind walls; we spend an enormous amount of time listening” to what RIAs want, including conducting multiple advisory boards. One such board includes principals of firms, where in day-and-a-half meetings, “we ask if they’re seeing the same trends we are” and specifically ask those advisors about “the hot-button issues that they’re facing.”

One example of listening to advisors, Nally said, is the Veo platform’s open access approach to technology. “When we first went down this integration path, we wondered, ‘Should we pick one partner or multiple? Advisors told us that even if you build [one application], we won’t switch.”

Summing up TDAI’s internal human capital approach, Nally said, “We don’t have a lot of egos in our organization; there’s not a lot of hubris.”

As for helping advisors with their own human capital challenges, at the national conference TD announced a new program that will award 10 scholarships worth $5,000 each to students in undergraduate financial planning programs. In addition, TD will award a $50,000 grant to a university that “best demonstrates a commitment to educating the industry’s future financial professionals.”

In an interview during the conference, Dario (left), TDAI’s managing director of product development, said that while undergraduate business majors receive training in various related subjects, financial planning is not one of them. The scholarships and grant, Dario said, are part of an overall strategy to help raise the profile of financial planning students and make the profession appear more desirable to good students, but will also bear benefits for RIA firms, not only in terms of succession planning, but in helping advisory firms serve the next generation of investors. Clients, he pointed out, “like to work with people who are like them” in demographics, age and interest.

Nally pointed out that TD hosted 31 financial planning students at the national conference and that those students walked away with “75 job offers. That’s development of future talent,” he said, but it was also part of TDAI’s strategy of “promoting the RIA model.”

Advocacy and Action

Bradley was long the most vociferous public supporter of the SEC imposing a fiduciary standard on all advice-givers, but since his move to the retail side, Skip Schweiss has become TDAI’s most prominent advocate of the fiduciary standard. In his dry, matter-of-fact way, Schweiss suggested that the financial services industry “has done a great job of confusing the consumer,” while TDAI advisors have told him that many are successfully using their fiduciary duty as a differentiator by “developing a clear story” about how having such a duty benefits clients.

While TDAI does not have a knee-jerk response to every fiduciary issue—for example, the Department of Labor’s off-again, on-again fiduciary proposal on retirement plans and advisors—Schweiss is adamant that “the industry needs to do a better job about consumer protection.” Partly as a means to that end and to bring all the major players in the fiduciary debate together, TDAI announced it would host an invitation-only “fiduciary leadership summit,” in Schweiss’ words, on June 13 in Palm Beach, Fla. The intent is to determine “how we go forward with the uniform fiduciary standard” by picking the collective brains of advisor associations like the Investment Adviser Association, consumer groups such as the Consumer Federation of America and the American Association of Individual Investors, and regulators from the SEC and FINRA.

Whihe is a principled advocate for advisors, Schweiss (left) knows enough about how Washington works to be a cold-eyed realist on the chances of implementing much of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Over all, he said that with the resurgence of the stock market in 2012, the pressure to implement a number of Dodd-Frank requirements has subsided. For example, on Dodd-Frank Section 914, which called for the SEC to consider a self-regulatory organization for RIAs, he wonders that with the current Congress’ focus on “guns and immigration, where does an SRO fit?” On Section 913, which called for the SEC to study whether a fiduciary standard should be applied to brokers as well as RIAs, he expects a concept release to come from the SEC by “early summer,” which will include a request for comments on “what should go into the cost-benefit analysis.”

Wealth Management Products and Services

“Everything an advisor can get from a wirehouse they can get from us,” said Dario in a January interview. In his new role at TDAI, Dario is in charge of new products but also oversees the custodian’s practice management and wealth management efforts. “We’re trying to be a strategic resource” to RIAs, Dario said, as evidenced by the “3,600 consultative engagements” that TDAI has conducted with RIAs in 2012. Part of his team’s approach is to identify “what the best advisory firms do to succeed” and how they “create enterprise value,” then share those best practices with other advisors. The next generation of advisors, Dario argued, is critical to solving both issues. The creation of enterprise value goes beyond mere succession planning and should include how advisors “recruit, train and develop” new talent. Dario said it’s important for established advisory firms to “bring in junior advisors” to learn the business and provide customer service to existing clients, but also to “serve the next generation of investors.”

As part of those consulting engagements and with an eye toward using next-gen advisors to attract and serve next-gen clients, “building a brand is essential,” partly by using technology such as “social media to become an expert” in advisors’ non-geographically-limited community. “If your name is on the business,” Dario cautioned, “then you have to be the brand.” All advisory firms should use their Web presence to demonstrate their role as thought leaders by providing good content on their sites that they produce themselves or other’s content that they pass along.

A third announcement during its national conference had to do with technology but also reflected TD’s open-architecture approach: Through Veo, TDAI-affiliated advisors will be able to use the Web-based version of the iRebal rebalancing tool for free. The service is in beta now, Dario said, with a full-blown rollout likely by summer 2013. The iRebal announcement reflects TD’s strategic partnership approach, Dario said. “We don’t pretend to have all the answers” when it comes to tech tools, but instead “we partner with firms like ActiFi.”

The Present and Future

That “strategic partnership” approach isn’t limited to technology. Nally pointed out in a mid-February interview that when it comes to the fiduciary standard, “we give advisors the tools to articulate the difference between the fiduciary model and the broker model” to their advisor clients and elected representatives. As for the future of the advisor model, Nally sees the “silver lining of the financial crisis” reflected in consumers asking more questions of their advisors. He’s also heartened by “the awareness of the RIA channel among breakaway brokers” who are “migrating in droves” to the independent advice model. Far from bashing brokers, saying many of them are “good people who want to serve their clients,” he argued that even among brokers who may not be “ready to move” yet, they now consider RIAs “the aspirational model” when TDAI speaks to them. “We don’t see that slowing down at all,” he said, before returning to his coda: “If you put your client first, good things are going to happen; it’s basic and simple.”